Tuesday, October 26

Lump-sum

A lump-sum tax is a tax that is a fixed amount, no matter the change in circumstance of the taxed entity. (A lump-sum subsidy or lump-sum redistribution is defined similarly.)

It is one of the various modes used for taxation: income, things owned (property taxes), money spent (sales taxes), miscellaneous (excise taxes).

It is a regressive tax, such that the lower income is, the higher percentage of income applicable to the tax. An example is a poll tax to vote, which is unchanged no matter what the income of the voter.

Other related examples include personal property taxes on cars or business equipment regardless of income or ability to pay; and real estate taxes where senior citizens often have to pay an extremely large percentage of their retirement income (especially when living on social security) to continue living in a home they purchased during their working years.

In economic theory, a lump-sum tax may have the advantage of not contributing to an excess burden of taxation, a loss in economic efficiency that results from taxes reducing incentives for production. In practice, lump-sum taxes are often encountered, in spite of their conflict with other criteria, such as equity or ability to pay. A lump-sum tax remains a standard for measuring the performance of other imperfect kinds of taxes (J. de V. Graaf, 1987).
See also


Source:wikipedia)

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